Thursday, January 22, 2009

Financial fear in the UK

LONDON: An island nation that bulked up on debt and lived beyond its means. A plunging currency. And a financial system edging toward nationalization.

With the pound at a seven-year low and still falling, and the British banking system requiring ever-larger rounds of government support, it is no wonder that observers in recent days have pronounced this city "Reykjavik-on-Thames."

While that judgment seems exaggerated, there are uncomfortable echoes of Iceland's financial downfall in Britain's trajectory. And for ordinary consumers, who enjoyed a long boom that transformed the drab United Kingdom of old into Cool Britannia, fears are growing that Britain could return to the economic stagnation of the 1970s.

The pound has dropped 7.6 percent against the dollar this week and 4.2 percent against the euro.

Even though there has been a steady drumbeat of gloomy economic news for months here, the mood this week has darkened dramatically.